Monday, May 21, 2012

A blast from the past

Much has been said of MAS losses and Airasia's potential operational problem. But really, Airasia is in a bigger trouble than that.

To understand it, one need to look back at history and start from MAS early years. There is a piece by The Star published on December 9th, 2007 for MAS 60th Anniversary that serve our purpose.

Since it was written during Tun Abdullah Badawi era, it is spinned to make Dato Idris Jala bigger than what he is really capable and continued villification of Tan Sri Tajuddin Ramli.

It was Tun Abdullah way of justifying his brother taking MAS Catering (today with Tamaddam) and enable "them" to steal away MAS IT. He was too sleepy and stupid to realise that there was a gameplan at work to kill MAS and MAB.

The mentioned The Star article below:

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Flying high once more

Dec 09, 2007

From the “winged tiger” of Malayan Airways Limited (MAL) in 1947 through to the soaring Kelantanese wau kite emblem of today, it has been a momentous 60-year journey for Malaysia Airlines (MAS).

And it has endured, for better or worse, as a national symbol through its triumphs and tragedies.

After the break-up with Singapore in 1972, MAS had to rebuild virtually from scratch. By 1994, it had established itself as a respected and profitable international airline. And then it was privatised to tycoon Tan Sri Tajudin Ramli.

The airline incurred massive losses and six years later, the Government had to renationalise it. Even then, tales of mismanagement continued until MAS was on the brink of collapse in 2005 with losses of RM1.3 bil.

[Note: ABITW have proven that Tajuddin's losses pales in comparison with the losses of the post WAU era. Tajuddin's loses were attributed to foreign exchange revaluation but was profitable operationally. See past postings.]

It was then that Datuk Seri Idris Jala was appointed as the CEO. And what a difference two years have made – the airline posted its highest ever profits of RM610mil this year.

[Note: Idris Jala pulled rabbit out of the hat by selling assets and chopping 3,000 staff but later add back 3,000 sstaff. What an idiot? Although claimed to be an oilman, he was arbitraging jet fuel like an amateur spot trader and bled MAS badly.]

How was the rabbit pulled out of the hat? But it was no sleight of hand, just a solid demonstration of what Malaysians can achieve with proper leadership, hard work and thrift.

What a ride, or rather flight, MAS has been.

The early years

Malayan Airways began modestly in 1947 with propeller planes such as 21-seater DC3's with flights from Singapore to Kuala Lumpur, Jakarta, Medan and Saigon. By the early 1960s, jets such as the Comets were added.

Two name changes followed, first to Malaysian Airways Ltd in 1963, and then to Malaysia-Singapore Airlines (MSA) in 1967. The latter was equally owned by both countries and was highly profitable, with destinations including London, Rome, Bombay, Taipei and Perth.

Yet, the two countries had different priorities.

“Singapore was an island and wanted to promote itself through international flights while Malaysia was more interested in domestic services,” Bernard Thomazios, 65, explains in an interview. He was seconded from the Transport Ministry to MAS in 1971 and retired 21 years later as its deputy managing director.

The differences became so bad that the directors were quarrelling like “cats and dogs”, recounts one-time MSA chairman, Robert Kuok in Airborne, the MAS 45th anniversary book published in 1992.

Finally, Malaysia and Singapore agreed to split the airline. According to Airborne, Malaysian Airline System (MAS) inherited 12 smaller aircraft while the five larger Boeing 707s went to Singapore Airlines (SIA). More crucially, Singapore inherited the rights from MSA to fly international routes. In later years, this division was criticised, by former Prime Minister Datuk Seri Dr Mahathir Mohamad and others, as a raw deal from Singapore.

“We only took the 50-seater Fokkers,” says Thomazios. “As for the larger planes, we told Singapore we didn’t want them. We did not have the traffic and were not sure we could translate the planes into profits.”

Captain Hassan Ahmad remembers how, just before the split, the Government sent people to persuade Malaysian staff of MSA (based in Singapore) to return to KL.

“In their briefings, it was clear they (the government officials) were more interested in domestic flights. They didn’t even talk of regional routes. It was a mindset. I realised it was no way to plan a national airline but we were just employees,” says Hassan, 71, the first Malay civil aviation captain who retired as director of flight operations in 1992.

“We even lost the KL to Bangkok route,” recalls Thomazios. “The Thais stopped us from flying because they said it was a Singapore to KL to Bangkok route (belonging to SIA).”

Take off

So were we simply outmanoeuvred due to inexperience and lack of know-how?

“The head office as well as the management, engineering and financial people were all in Singapore,” reflects Lee Shu Poh, 77. He joined MAL in 1949 as clerical staff and worked all the way up to become MAS operations manager (1982-88).

“In 1972, I was the most senior Malaysian at MSA in Singapore. I was also at the Mandarin Hotel briefings to persuade other Malaysians to return. But most chose to remain in Singapore (as they felt they had better prospects).”

Despite the handicaps, MAS soldiered on, investing in engineering facilities and six new Boeing 737s. The board of directors was made up mostly of civil servants and, as Airborne recalls, “few believed that this motley team ... could actually create and run a viable commercial airline.”

“We had to buy tables and chairs for our first office,” recounts Thomazios, which comprised two rented floors of the Police Co-op building with two telephone lines.

Airborne quotes Tan Sri Saw Huat Lye, the first chief operating officer (1972–1982):“We were the underdogs.... We had to do everything ourselves, design our logo, decide on toothpicks, learn to create a flight kitchen ... our families did not see us for almost two years. Our home was our office. Every Sunday, every holiday, we worked.”

The slogging paid off. With help from Qantas experts, MAS took off three months ahead of schedule. On Oct 1, 1972, the pre-dawn darkness of Subang Airport’s rubber tree-lined road was lit up by many, many cars and buses carrying VIPs and ordinary citizens eager to watch history unfold.

The airfield became a spectacular stage featuring the new aircraft. At 5.30am, to the beat of rebana drums and rapturous applause, Deputy Prime Minister, Tun Dr Ismail, launched the first MAS flight to Singapore.

Tan Sri Abdul Aziz Abdul Rahman, the then company secretary, says in Airborne, “There were teething problems, delays, etc. It was to be expected.... But it was not long before Malaysians were able to acquire the necessary skills to operate the airline smoothly.”

However, MAS had to negotiate all its international routes afresh and Singapore’s head start as an international aviation hub was a hampering factor.

For instance, on the lucrative “kangaroo route” from Australia to London via South-East Asia, both SIA and MAS were fighting for market share. Thomazios, who spent “half his life” negotiating flight rights, explains:

“Qantas was only operating two KL-Sydney flights a week, so the rules said we were limited to two as well. Why should Qantas fly more when they were already making money from their seven Sydney-Singapore flights (and on to London)?”

“To get two extra flights to Sydney for MAS, I even had to offer Qantas half of the flight revenues. But it was okay because we could take (extra) passengers from Sydney and fly them on the more lucrative KL to London route.”

Making money

MAS managed to be profitable in all its first 20 years, except for 1981. It could even overcome the oil “price shock” (when it quadrupled!) of 1973.

“We watched every cost. Growth had to be planned and steady,” explains Thomazios. “You can’t say, 'Oh SIA is so profitable because they have 747s'. Doesn’t mean we go and order 10 747s also. Planes have to fit passenger demand. Otherwise, you leave them on the ground and you lose money every day.”

Lee adds, “It’s no point running a Rolls Royce when passengers will only pay Proton taxi fares.

“We developed a culture of thriftiness. Buy what you need, not what you want.”

He continues to live by that culture. He shows me his RM45 Casio digital watch and 20-year-old leather shoes.

“They work fine. Why should we show off? Does the watch say who I am?”

“We could make nasi lemak for only 10 or 20 sen per pax. And we sold it to other airlines for RM1 each!”

But other considerations also came into play that overturned good business practice: “The Los Angeles route was glamorous but we were losing our pants. We tried to anticipate growth but sometimes, because of diplomatic relations, we had to do 'national service’ and set up new flights.”

What about long standing complaints (especially from Sabah and Sarawak) that MAS should have had cheaper air fares to fulfil its objectives of “promoting national integration” and boosting tourism?

“Well, we did offer cheaper flights at night and for groups,” he says.

However, one much appreciated part of MAS was the (government-subsidised) Rural Air Service using small Twin Otter 12-seater aircraft that provided a critical link to isolated villages such as Bario, Long Semado and Ba Kelalan deep in the interior of Sabah and Sarawak.

“Everybody will be waiting for the plane next to the airstrip, as if the ice cream man was coming,” recalls Lee.

In fact, one of those who waited for the plane at Bario was a boy named Idris Jala.

Growth and decay

MAS continued to grow in strength from year to year in terms of routes, aircraft and staff. There were hiccups such as the 1977 crash (all 100 on board were killed) at Tanjung Kupang, Johor, (the hijacker shot the pilots) and the big strike of 1979 (which ended after 18 people were arrested under the ISA).

Nevertheless, by 1985 MAS was so self-assured that it could go for a stock exchange listing. Aziz, who was CEO from 1982–1991, proudly pointed out that 90% of flights departed on time (the rest were 15 minutes late) while profits had soared to RM132mil.

The shares, offered at RM1.80 each, shot up way past RM5 upon listing, a resounding public vote of confidence in the company. The additional funds were invested in expansion plans and by 1990, profits rose to RM224mil.

The company had grown from 900 people in 1972 to 19,000 in 1992, serving over 9 million passengers.

The then chairman, Tan Sri Zain Azraai, said, “We can take pride that no major allegation of financial wrong-doing has ever been made. (Besides that) I also mean intellectual honesty. Officers in MAS, in submitting their views, should not tailor them to what they think their seniors want.”

[Note: He was the one insistence on the expensive and irrelevent George Lucas directed Star War styled advertisement.]

Zain’s words unwittingly forewarned of what was to come. In 1994, the Government privatised its controlling stake in MAS to tycoon Tajudin Ramli. By 2000, the airline was tottering under the weight of RM9.5bil in debt after a fourth straight year of losses.

The culture of thrift of the early years had been replaced by a spending spree. The MAS Executive Staff Association (Mesa) told the press in 2002, that third parties with “personal links” to certain corporate people were given lucrative contracts to handle services like air cargo, catering, insurance underwriting, a yacht business, off-shore aircraft leasing and IT.

Mesa claimed that the MASKargo scandal was just the “tip of the iceberg”.

The Government renationalised the airline in a highly controversial purchase of Tajudin’s MAS shares at RM8 each, though the market price was just RM3.62.

Tan Sri Azizan Zainul Abidin, the new chairman, frankly disclosed then that MAS’ culture had “fostered abuse, the plunder of the company for personal gains, high cost and inefficiency.” He promised new procedures to plug the “rampant leakages and stop the haemorrhage to protect it from predators.”

In 2002, the burdens of aircraft depreciation, various debts and unprofitable domestic routes were transferred to Penerbangan Malaysia Bhd, the Government’s airline holding company. MAS even lodged a police report against Tajudin for improprieties in MASKargo which had caused the airline to lose some RM1bil.

[Note: Till today, none of these allegations targeted towards Tajuddin have been properly exposed, substantiated and brought to court except for the Hahn Airport that went for arbitration in Geneva. MAS lost and have paid for it.

Government could lose billions if Tajuddin pursue his lawsuits for being unfairly stripped off control in Naluri, Celcom, etc. However, the public fail to realise that Tajuddin only asked for all demands to be dropped and he is willing to forgo what should be due to him.

He had paid and was the highest amount paid to Danaharta unlike other Chinese tycoons who refused to pay any, like Tan Sri William Cheng.]

Even then the haemorrhage continued, and Dewan Negara senators queried the purchase of Botero paintings and asked why a foreign “consultant” was being paid RM7,525 a day.In the first nine months of 2005 alone, the losses were RM1.3bil. So what was to be done?

[Note: That was the work of Kalimullah buddy that later became MAS Chairman to replace Azizan, Tan Sri Munir Majid.]

New helmsman

Enter Idris Jala, then a senior executive with Shell Malaysia, as CEO in December 2005. Relatively unknown, his appointment was somewhat of a surprise and he faced a monumental task: an overstaffed and demoralised MAS that was close to running on empty with the majority of its routes making losses.

Undaunted, he got to work. (See The Idris Jala way on SM6). When a local business magazine asked him last year how “MAS culture” had changed, he answered, “You change culture by doing.”

But some things may not be perfect yet. In mid-2007, there were rumours of employee sabotage apparently over alleged favouritism in giving out incentives, resulting in many missed and delayed flights (even Transport Minister Datuk Seri Chan Kong Choy was affected).

Idris' solution to tackling such residual problems was to have an open door policy and be transparent.

“There is no accountability without transparency,” explains Idris.

And it has gone down well. Says MAS staff trainer Faridah Abdul Rahman; “It’s fantastic. The CEO is online. He gives out his email address and staff can write to him directly. And he replies!”

“It’s the first time it has happened in the company,” testifies Alice Nazareth, a marketing executive, who joined MAS as a stewardess back in 1973.

Another factor is the CEO’s humility.

Mazlan Mokty, a senior steward, says, “When we see him, he doesn’t like us to call him Datuk. He prefers just plain Idris.”

Idris's upbringing must surely play a part. He grew up in the Bario Highlands of Sarawak’s interior, the home of the staunchly Christian Kelabit people.

There were (and still are) no roads and it took more than a week to reach Miri by jungle trail and riverboat.

“My father was a teacher and I followed him on jungle treks for days sometimes. Because of these hardships, we did not take things lightly. As a student I knew that if I wanted to see the world beyond our hills, I had to study hard.

“When the MAS Rural Air Service started flying to Bario, it was like a gift from heaven. If people were not working or at church, they would go to the little airstrip to wait for the plane. I grew up totally loyal to MAS.”

That steadfast belief in the organisation and its people has been rewarded. When Idris announced the turnaround plan in 2005, the business community was not convinced. Now just two years on, MAS has earned the highest profits in its history.

From a morass of low morale and abysmal losses, MAS' makeover – based on accountability, transparency, hard work and thrift –has been nothing short of magical.

The celebration of its 60th Anniversary has shown how Malaysians can aspire to greatness.

[Note: Idris Jala failed badly too! He did not managed to turnaround operation but did creative accounting to manipulate sales of assets as operational profit. He was piling loses in RM100 million per month and camouflaged it with his novice way of arbitraging fuel.]

However, there is no agreement or collaboration signed between MAS and Airasia yet. Hopefully there is still room for MAS to negotiate for a better collaboration than one that only serve the interest of Airasia.

Nevertheless, it is tough for Managing Director, Ahmad Jauhari with Danny Nanny still in the management team, WAU and Tun Abdullah-linked members of the Board in control, Airasia proxies in MAS management and Tun Abdullah on MAS paid RM30,000 per month pension.

If AJ failed to do so, he will face a tough time ahead to get staff and union cooperation. He could even have his past dig up too.

All the while, the PR message on the CCF is that only MAS is in trouble and Airasia is there to help them. The truth to the matter, which many pilots, engineers and those in the know of industry development are aware, is that Airasia is heading for a major problem.

Don't talk of Airasia's fabulous growth, even for the near future, because that is history.

The industry talk is Airasia will face increasing competition from other LCCs, financial problems in servicing and maintaining their planes, failed long haul low cost model for Air Asia-X, stuck with large order of 200 Airbus over 15 years and caught with a "must grow" business model.

Save any unrelated comments for the real conspiracy to be unveiled but never realised by many.

Airasia is in bigger trouble and MAS is already in trouble. Both must work together and honestly or both will be ruined. Not only that, groups like Nazir's CIMB will be ruined too!

7 comments:

Kamal
said...

Bro.I dont belief AAsia will in trouble financially.They can take any new airline coming in like Mandela Air or Tiger Air.If you look at the market in Asia,is mind boggling.We ave Chine 1.3 billion people,India 1 billion,Indonesia 200 m,Vietmnam 80m,Thailand 70M,Malaysia 25m,Burma 80m,Bengladesh 200m.Is bigger that Europe and US.

If Southen Airline can survive in US with 400 planes,and Ryann air survive in europe with 200 plane.Why not Air Aisa.

They have problem only with A Asia X but they are adjusting quickly and flying only to route less than 6 hours.

I am worry about Mas.They were told not to sack the workers and they were told to make profit.AJ said we are not flying kite?

On more than one occassion I wrote in the Malaysian Insider, but my comments were not posted as I critised LGE on how he was impolite to walk in during the speech of Dr. Rahnie the PAS Selangor Commissioner and cause disruption.

It's unfortunate indeed that the consipiracy theory goes unproven. But seems to be the de facto of Malaysian politics that are closely intertwined with business and corruption.

I have good friends in MAS who felt very dejected that people thought Air Asia vis-a-vis DS Tony Fernandes is the solution to MAS. And when the Unions "succeeded" in reversing the share swap, MAS staffs, generally, were tagged as the culprit that prevented the turning around. I like your piece on DS Rafidah Aziz gone off her rockers. But I have to echo my affected friends in MAS who felt the insinuation was unjust.

The fact to the matter, MAS staffs are among the most competing group of people there is. Despite being at the brink of collapse, they prefer to compete with Air Asia (and other airlines) instead of being swallowed into the hypocritical saving gesture. Why people don't see that is beyond them.

What MAS need is a great leader, warrier and fighter, to lead MAS through. In hindsight, Idris is the lesser of all evils combined, but the Government is to be blamed for repeatedly putting in lame, incompetent and downright corrupt leaders. Any great leader need great army, who are willing to sacrifice and go at great length. The army is already there, waiting for the able leading General.

I also dont think AA will be in trouble financially. Did my thesis on AA operations and to me, summarize it, the business is financially sound. Aricrafts are bought on profitable routes. Once not profitable, they just axe it.

Very cost-sensitive business. Unlike Tony F's other business ventures, AA will continue to make money. Maybe thats why the 'collaboration' between MAS and AA seem one sided, cause only one side has better books and enough passesngers/business annually to still remain a leader in the LCC industry.

I believe they have grown big enough that will disallow other LCC players a piece of their pie. They can nibble a bit, but it'll take a titanic effort to dethrone AA.

MAS, sayangnye, dan sedihnya, we're too sentimental over it. 1 billion losses, bleeding from pockets left right center and the deeper you search and block these pockets, other pockets emerges! with their dream of issuing billions of ringgit bonds, and khazanah's willing (publicly) to take up bonds that are not taken up, the future of MAS seems bleak. what, 4 turn around plans? macam tak jadi je semua.